Fed Focusing on Real-Estate Recession as Bernanke Convenes FOMC

By Scott Lanman

Aug. 10 (Bloomberg) -- The collapse in commercial real estate is preventing Federal Reserve Chairman Ben S. Bernanke from declaring the economy and financial markets are healed.

Property values have fallen 35 percent since October 2007, according to Moody’s Investors Service. That’s making it tough for owners to refinance almost $165 billion of mortgages for skyscrapers, shopping malls and hotels this year, pressuring companies such as Maguire Properties Inc., the largest office landlord in downtown Los Angeles, to put buildings up for sale.

The industry is likely to be high on the agenda when Bernanke and his colleagues sit down in Washington tomorrow for the Federal Open Market Committee meeting on monetary policy. Lawmakers including Barney Frank and Carolyn Maloney are pushing the central bank to extend an aid program designed to restore the flow of credit.

If nonresidential real estate remains in the doldrums, the Fed may be forced to leave emergency-lending programs in place and keep its benchmark interest rate close to zero for longer than some investors expect, given positive signs elsewhere in the economy.

Commercial property is “certainly going to be a significant drag” on growth, said Dean Maki, a former Fed researcher who is now chief U.S. economist in New York at Barclays Capital Inc., the investment-banking division of London-based Barclays Plc. “The bigger risk from it would be if it causes unexpected losses to financial firms that lead to another financial crisis.”

‘Close Attention’

The Fed is “paying very close attention,” Bernanke, 55, told the Senate Banking Committee on July 22, the second of two days of semiannual monetary-policy testimony before the House and Senate. “As the recession’s gotten worse in the last six months or so, we’re seeing increased vacancy, declining rents, falling prices, and so, more pressure on commercial real estate.”

The pressure may be easing in other areas of the economy. Gross domestic product shrank at a better-than-forecast 1 percent annual pace in the second quarter after a 6.4 percent drop the prior three months, and residential housing starts rose unexpectedly by 3.6 percent in June as construction of single- family dwellings jumped by the most since 2004, according to data from the Commerce Department.

Employers cut fewer workers than anticipated last month as the jobless rate fell to 9.4 percent from 9.5 percent in June -- the first decline since April 2008, based on Labor Department figures.

‘Danger Zone’

Amid such glimmers of improvement, commercial real estate is a “particular danger zone,” said Janet Yellen, president of the Federal Reserve Bank of San Francisco, in a July 28 speech in Coeur d’Alene, Idaho. The market may be “under stress for some considerable period of time,” William Dudley, chief of the New York Fed bank, said the following day in New York.

Nonresidential construction may decline as much as 9 percent this year and another 5 percent in 2010, predicts Kenneth Simonson, chief economist at Associated General Contractors of America, an Arlington, Virginia, trade group whose members include Essen, Germany-based Hochtief AG’s Turner Construction Co. in New York, one of the largest U.S. builders. In the second quarter, it accounted for 3.6 percent, or $509 billion, of U.S. gross domestic product on an annual basis, down from 4.3 percent in the final three months of 2008.

A dozen lawmakers questioned Bernanke on the topic during his July testimony. Some asked about extending the Term Asset- Backed Securities Loan Facility, the emergency program the Fed began in March to restart the market for securities backed by auto, credit-card and education loans. The central bank expanded the facility in June to cover as much as $100 billion in loans to support commercial mortgage-backed securities.

One-Year Extension

Forty-one House members -- including Frank, 69, a Massachusetts Democrat who chairs the Financial Services Committee, and Maloney, 61, a New York Democrat who heads the Joint Economic Committee -- signed a July 31 letter seeking a one-year extension through December 2010 and asking for a decision by mid-August.

Fed policy makers will prolong the program if they judge financial markets are still “some distance from normal operation,” Bernanke said during his July 22 testimony. “We will certainly be monitoring the situation.”

The Fed likely will change the end date -- just not right away, said former central-bank Governor Lyle Gramley.

Market Developments

“They’re probably going to want to wait a while to see how markets develop,” said Gramley, 82, now senior economic adviser with Soleil Securities Corp., a New York-based investment- research firm.

A six-month continuance is more likely than the one year industry officials want, said former Fed Governor Laurence Meyer, Washington-based vice chairman with consultant Macroeconomic Advisers LLC of St. Louis.

That would still be useful and “provide more of a runway” for the TALF to be effective, said Jeffrey DeBoer, president of the Real Estate Roundtable, a Washington group representing 16 trade associations and property owners including New York-based Vornado Realty Trust, the third-largest U.S. real-estate- investment trust by market value.

Any sales of mortgage-backed bonds would be the first new issues in the $700 billion U.S. market for commercial-mortgage- backed securities since it was shut down by the credit freeze in 2008.

About $3 billion are in the pipeline, and the success of these sales may foster as much as $25 billion in total deals in the next six months, said Kenneth Rosen, who runs a $310 million hedge fund in real-estate securities and heads the University of California’s Fisher Center for Real Estate and Urban Economics in Berkeley.

Signs of Improvement

The market is showing some signs of life: The Bloomberg REIT Office Property Index of 14 companies, while down 56 percent from its February 2007 peak, has gained 41 percent in the past six months. Also, the yield gap, or spread, on top- ranked commercial mortgage-backed bonds relative to U.S. Treasuries is about 4.49 percentage points compared with 8 percentage points at the start of May, according to Barclays data.

The Fed’s efforts to revive credit may be overpowered by continuing job losses, even as the pace of those losses slows. U.S. employers eliminated 247,000 workers from payrolls last month, according to an Aug. 7 Labor Department report, bringing the cumulative reduction to about 6.7 million since the start in December 2007 of the worst contraction since the Great Depression.

‘Negative Fundamental’

“Demand for commercial space comes from employment and the income generated by that employment,” said University of Pennsylvania Professor Joseph Gyourko, director of the Wharton School’s Samuel Zell and Robert Lurie Real Estate Center in Philadelphia. Mounting job losses are a “really significant negative fundamental,” signaling that “conditions are going to be tough for the industry for a while,” he said.

That may spill over into mounting losses at some banks. Forty-seven percent of loans at the 7,000-plus smaller U.S. lenders are in commercial real estate, compared with 17 percent for the biggest banks, according to New York-based Goldman Sachs Group Inc.

Regions Financial Corp., the Birmingham, Alabama, lender that accepted $3.5 billion in U.S. rescue funds, had $36.9 billion in nonresidential real-estate and construction loans at the end of the second quarter, 38 percent of its overall total. Regions posted a net loss for the period of $188 million compared with a profit of $206.3 million a year earlier as more developers and home builders fell behind on payments.

Third Straight Loss

Salt Lake City-based Zions Bancorporation, which operates in 10 Western states, reported its third straight quarterly loss July 20 on a surge in commercial-property defaults. Thirty-five percent of its loans for the period were in nonresidential real estate and construction, and its provision for loan losses rose to $762.7 million from $297.6 million in the first quarter.

One developer based in U.S. Representative Walt Minnick’s district is in a bind because a lower appraisal means he can’t renew the full amount of a $10 million, three-year loan he took out for a recent project, the first-term Democrat from Idaho said in an interview last week. The person may be forced into bankruptcy, said Minnick, 66, without identifying the developer.

“That is a microcosm of what is happening to commercial property” everywhere, he said. “It’s the next shoe to drop.”

Maguire bought 24 properties and 11 development sites for $2.88 billion in 2007 from New York-based Blackstone Group LP, the world’s largest private-equity company. Later that year, credit markets froze, blocking the Los Angeles-based company’s efforts to refinance its mortgages. As a result, Maguire said in April it would accelerate its property sales to raise cash and pay down debt from the purchases.

Refinancing Debt

New York-based Brookfield Properties Corp. faces a $1.8 billion debt maturity in October 2011 arising from the 2006 purchase of Trizec Properties Inc., which made it the second- biggest owner of U.S. office buildings by square footage. Brookfield has said it expects to refinance some of its obligations and sell buildings to cover the rest.

Commercial real estate remains “an important downside risk,” said Gramley, a Fed governor from 1980 to 1985. “I don’t think it’s going to be a blockbuster negative, but it’s one additional reason why this recovery is going to be of modest dimensions.”

To contact the reporter on this story: Scott Lanman in Washington at slanman@bloomberg.net.

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U.S. Economy May Be on Brink of Recovery, Tyson, Krugman Say

By Shamim Adam and Liza Lin

Aug. 10 (Bloomberg) -- The U.S. economy may be on the cusp of a recovery and the impact of the nation’s stimulus plan should increase this quarter, said Laura Tyson, an adviser to President Barack Obama.

“We may have hit stability, we may be in the beginning of an upturn” based on the latest economic data, Tyson, a member of the White House’s Economic Recovery Advisory Board, said yesterday during an interview in Kuala Lumpur. Nobel Prize- winning economist Paul Krugman said the deepest slump since the Great Depression may be ending.

“It’s quite possible, though not certain, that retrospectively, we’ll say that the recession ended in July or August, maybe September,” Krugman said in a separate interview in the Malaysian capital. “My guess is that we’ve bottomed out now, that August was probably the trough month.”

Krugman, 56, cited last week’s government report showing that the pace of U.S. job losses slowed more than forecast in July and the unemployment rate dropped for the first time in 15 months. He also pointed to reports by the Institute of Supply Management that manufacturing, while still contracting, is on the mend.

Tyson, 62, cautioned that declining housing values and an overhang of unsold homes pose threats to a recovery, and it’s too early to say the jobs report is the beginning of a trend.

“We’ve had one number that’s been slightly stronger than expected,” she said. “It’s pretty hard to read a single month as creating a trend. Most of the forecasts are still that the unemployment rate rises through till the end of the year.”

Unemployment Falls

U.S. payrolls fell by 247,000 in July, after a 443,000 loss in June. The jobless rate unexpectedly dropped to 9.4 percent from 9.5 percent. Obama said last week that the unemployment numbers indicate “the worst may be behind us.”

The report propelled the Standard & Poor’s 500 Index above 1,000 for the first time since November as U.S. stocks rose for a fourth week. The S&P 500 rose 2.3 percent to 1,010.48, the highest since Oct. 6. The Dow Jones Industrial Average climbed 198.46 points, or 2.2 percent, to 9,370.07.

The Aug. 7 Labor Department report came a week after the Commerce Department said U.S. gross domestic product shrank at a better-than-forecast 1 percent annual pace in the second quarter after a 6.4 percent drop in the prior three months.

There’s no reason for a second stimulus package now, Tyson said in the interview. She suggested on July 7 the U.S. should consider drafting a second stimulus package focusing on infrastructure projects because the $787 billion approved in February was “a bit too small.” She told CNBC three days later that it’s premature to plan for a second stimulus package.

Stimulus Expectations

“We know that relative to plan, the stimulus package in place is performing along expectations,” Tyson said yesterday. “Right now, based on the evidence that the economy has put forward and the stimulus spend out relative to plan, there isn’t any reason to think about a next round.”

Policy makers may want to consider doing more for unemployed Americans, Tyson said. Employers have eliminated about 6.7 million jobs since the recession began in December 2007, the most since the Great Depression.

Congress will consider extending unemployment benefits next month when lawmakers return from their August recess, Majority Leader Harry Reid said Aug. 7. The Senate’s top Democrat said 1.5 million Americans may exhaust their benefits by the end of the year if Congress doesn’t act.

“That could be considered as a second stimulus or it could be considered as an extension of unemployment compensation,” said Tyson, a professor at the University of California’s Walter A. Haas School of Business, who was an adviser to Obama during last year’s presidential campaign.

1 Million Jobs

Krugman, a Princeton University economist, said the stimulus plan probably saved 1 million jobs. He said a second package is needed and should be directed at state and local governments as well as spending on construction projects.

The U.S. economy may be the first after Asia to “take off,” said Raghuram Rajan, the former chief economist of the International Monetary Fund who’s now a professor at the University of Chicago.

“Unemployment may continue rising and job losses may continue, but growth will start picking up in the U.S.,” Rajan, 46, said in an interview yesterday. “We will get a few quarters of rebound growth.”

Krugman, Tyson and Rajan were in Kuala Lumpur for the World Capital Markets Symposium, which starts today.

To contact the reporter on this story: Shamim Adam in Kuala Lumpur at sadam2@bloomberg.net; Liza Lin in Kuala Lumpur at llin15@bloomberg.net

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Yen Rises as Signs Recession Is Easing Spur Foreign Investment

By Ron Harui

Aug. 10 (Bloomberg) -- The yen rose for the first time in three days against the euro after government reports showed Japan’s recession may be abating, encouraging foreign investors to buy assets in the world’s second-biggest economy.

The Japanese currency ended two days of losses versus the dollar after machine orders rose, exports improved and as speculation intensified that exporters brought back overseas earnings. The pound traded near a five-week high against the euro before a U.K. report tomorrow that economists said will show the housing market improved for a fifth month.

“Japan’s economic data were good,” said Toshihiko Sakai, head of trading for foreign exchange and financial products at Mitsubishi UFJ Trust & Banking Corp. in Tokyo. “Foreigners have been net buyers of local stocks, possibly reflecting more interest in Japanese assets. This is a yen-buying factor.”

The yen advanced to 138.01 per euro as of 7:45 a.m. in London from 138.41 in New York on Aug. 7, when it declined to 138.72, the lowest level since June 5. The Japanese currency climbed to 97.22 per dollar from 97.57, after falling to 97.79 on Aug. 7, the weakest level since June 16.

The dollar traded at $1.4196 per euro from $1.4183 in New York on Aug. 7, when it rose to $1.4155, the highest level since July 31. Europe’s single currency traded at 85.12 pence from 84.98 pence. It slipped to 84.56 pence on Aug. 6, the weakest level since June 30.

Exchange-rate movements may be exaggerated by Japan’s Obon holidays this week, when Japanese often take week-long vacations to honor ancestors, Sakai said.

Japan’s Economic Reports

Japanese machinery orders climbed 9.7 percent in June, the first time in four months, the Cabinet Office said today. The increase was more than the 2.6 percent expected by economists surveyed by Bloomberg news. The nation’s current-account surplus more than doubled from a year earlier to 1.15 trillion yen ($11.8 billion) in June, the Ministry of Finance said.

Foreign investors bought 424.7 billion yen more in Japanese shares than they sold during the week ended Aug. 1, based on figures released by the Finance Ministry on Aug. 6.

The yen also gained on speculation Japanese firms bought the currency to repatriate income after it fell to a seven-week low versus the dollar and a two-month low against the euro.

“There’s talk that domestic firms are buying the yen,” Sakai said. “The currency fell to around 97.80 on Aug. 7, which is an attractive yen-buying level for exporters.”

Japanese companies forecast the yen would average 94.85 per dollar in the 12 months to March 2010, according to the Bank of Japan’s quarterly Tankan survey released July 1.

British Pound

The pound may strengthen for a second day versus the euro on signs the worst of the U.K.’s recession may be over.

U.K. manufacturing jumped in June by the most in 1 1/2 years, the Office for National Statistics reported on Aug. 5. The purchasing managers’ index for U.K. services rose to 53.2 in July, the highest since February, according to Markit Economics.

“The British economy is heading for a recovery, given that recent data such as manufacturing have been very good,” said Yoh Nihei, trading group manager at Tokai Tokyo Securities Co. in Tokyo. “It’s positive for sterling.”

Across Britain, the number of respondents saying house prices dropped exceeded those reporting gains by 10 percentage points in July, compared with 18.1 percent in June, according to a Bloomberg News survey of economists. The Royal Institution of Chartered Surveyors releases the survey tomorrow in London.

U.S. Economy

The U.S. economy may be on the cusp of a recovery and the impact of the nation’s stimulus plan should increase this quarter, said Laura Tyson, an adviser to President Barack Obama, in an interview from Kuala Lumpur yesterday. Nobel Prize-winning economist Paul Krugman said the deepest slump since the Great Depression may be ending.

“Economies around the world are improving, with the U.S. leading the way,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “The dollar is likely to be bought and the yen will probably be sold.”

U.S. employers eliminated 247,000 jobs in July after a revised decrease of 443,000 in the previous month, the Labor Department said on Aug. 7. The median forecast of 82 economists surveyed by Bloomberg News was for a reduction of 325,000. The unemployment rate decreased to 9.4 percent, whereas economists predicted an increase.

Federal Reserve

Any gains in the dollar may mark a return to the view that good U.S. economic news should benefit the currency as traders speculated that the Federal Reserve will boost borrowing costs sooner rather than later.

Futures on the Chicago Board of Trade indicated a 60 percent chance the Fed will increase the target lending rate from its range of zero to 0.25 percent by its January meeting, compared with 52 percent odds a month ago.

The Dollar Index, which the ICE uses to track the dollar against the currencies of six major trading partners including the euro, yen and pound, advanced 0.8 percent last week to 78.975. The gauge was at 78.860 today.

To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net.

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Yen Rises as Signs Recession Is Easing Spur Foreign Investment

By Ron Harui

Aug. 10 (Bloomberg) -- The yen rose for the first time in three days against the euro after government reports showed Japan’s recession may be abating, encouraging foreign investors to buy assets in the world’s second-biggest economy.

The Japanese currency ended two days of losses versus the dollar after machine orders rose, exports improved and as speculation intensified that exporters brought back overseas earnings. The pound traded near a five-week high against the euro before a U.K. report tomorrow that economists said will show the housing market improved for a fifth month.

“Japan’s economic data were good,” said Toshihiko Sakai, head of trading for foreign exchange and financial products at Mitsubishi UFJ Trust & Banking Corp. in Tokyo. “Foreigners have been net buyers of local stocks, possibly reflecting more interest in Japanese assets. This is a yen-buying factor.”

The yen advanced to 138.01 per euro as of 7:45 a.m. in London from 138.41 in New York on Aug. 7, when it declined to 138.72, the lowest level since June 5. The Japanese currency climbed to 97.22 per dollar from 97.57, after falling to 97.79 on Aug. 7, the weakest level since June 16.

The dollar traded at $1.4196 per euro from $1.4183 in New York on Aug. 7, when it rose to $1.4155, the highest level since July 31. Europe’s single currency traded at 85.12 pence from 84.98 pence. It slipped to 84.56 pence on Aug. 6, the weakest level since June 30.

Exchange-rate movements may be exaggerated by Japan’s Obon holidays this week, when Japanese often take week-long vacations to honor ancestors, Sakai said.

Japan’s Economic Reports

Japanese machinery orders climbed 9.7 percent in June, the first time in four months, the Cabinet Office said today. The increase was more than the 2.6 percent expected by economists surveyed by Bloomberg news. The nation’s current-account surplus more than doubled from a year earlier to 1.15 trillion yen ($11.8 billion) in June, the Ministry of Finance said.

Foreign investors bought 424.7 billion yen more in Japanese shares than they sold during the week ended Aug. 1, based on figures released by the Finance Ministry on Aug. 6.

The yen also gained on speculation Japanese firms bought the currency to repatriate income after it fell to a seven-week low versus the dollar and a two-month low against the euro.

“There’s talk that domestic firms are buying the yen,” Sakai said. “The currency fell to around 97.80 on Aug. 7, which is an attractive yen-buying level for exporters.”

Japanese companies forecast the yen would average 94.85 per dollar in the 12 months to March 2010, according to the Bank of Japan’s quarterly Tankan survey released July 1.

British Pound

The pound may strengthen for a second day versus the euro on signs the worst of the U.K.’s recession may be over.

U.K. manufacturing jumped in June by the most in 1 1/2 years, the Office for National Statistics reported on Aug. 5. The purchasing managers’ index for U.K. services rose to 53.2 in July, the highest since February, according to Markit Economics.

“The British economy is heading for a recovery, given that recent data such as manufacturing have been very good,” said Yoh Nihei, trading group manager at Tokai Tokyo Securities Co. in Tokyo. “It’s positive for sterling.”

Across Britain, the number of respondents saying house prices dropped exceeded those reporting gains by 10 percentage points in July, compared with 18.1 percent in June, according to a Bloomberg News survey of economists. The Royal Institution of Chartered Surveyors releases the survey tomorrow in London.

U.S. Economy

The U.S. economy may be on the cusp of a recovery and the impact of the nation’s stimulus plan should increase this quarter, said Laura Tyson, an adviser to President Barack Obama, in an interview from Kuala Lumpur yesterday. Nobel Prize-winning economist Paul Krugman said the deepest slump since the Great Depression may be ending.

“Economies around the world are improving, with the U.S. leading the way,” said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan’s largest currency broker. “The dollar is likely to be bought and the yen will probably be sold.”

U.S. employers eliminated 247,000 jobs in July after a revised decrease of 443,000 in the previous month, the Labor Department said on Aug. 7. The median forecast of 82 economists surveyed by Bloomberg News was for a reduction of 325,000. The unemployment rate decreased to 9.4 percent, whereas economists predicted an increase.

Federal Reserve

Any gains in the dollar may mark a return to the view that good U.S. economic news should benefit the currency as traders speculated that the Federal Reserve will boost borrowing costs sooner rather than later.

Futures on the Chicago Board of Trade indicated a 60 percent chance the Fed will increase the target lending rate from its range of zero to 0.25 percent by its January meeting, compared with 52 percent odds a month ago.

The Dollar Index, which the ICE uses to track the dollar against the currencies of six major trading partners including the euro, yen and pound, advanced 0.8 percent last week to 78.975. The gauge was at 78.860 today.

To contact the reporters on this story: Ron Harui in Singapore at rharui@bloomberg.net.

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Zijin Mining Says Copper Prices to Gain on Recovery, Liquidity

By Bloomberg News

Aug. 10 (Bloomberg) -- Zijin Mining Group Co., China’s largest gold producer, said a recovering world economy and loosening bank credit will bolster copper prices in the second half of the year.

Prices will gain because positive factors will outweigh negative ones, such as an oversupply of copper, the Fujian province-based company said late yesterday in its earnings statement. Copper is used in pipes, buildings and power equipments.

Copper prices have doubled this year as China, the biggest user, imported record amounts for stockpiling and as the government pushed a 4 trillion yuan ($585 billion) stimulus. Zijin’s call differed from Bank of America Merrill Lynch, which last week said copper prices are poised to fall.

“Though there is an oversupply of copper, as the signs for a recovering world economy become more clear and with an appropriately loosening credit control and liquidity, copper has rebounded strongly,” Zijin, which gets 14 percent of earnings from copper, said. “We expect positive factors to outweigh negative ones in the second half.”

Zijin gained as much as 1.7 percent to 10.61 yuan in Shanghai trading and was at 10.47 yuan at 10:44 a.m. local time.

Profit Rose

The company yesterday said first-half profit gained 11 percent on higher gold prices and production. Gold, which has risen by 8.2 percent in prices this year, accounts for 83 percent of net income, it said. It also produces zinc and iron ore.

“There will be positive changes in world economic growth in the second half,” Zijin said. “Gold prices will remain at a high level.”

Demand for zinc, used in automobiles, will rise strongly in China in the second half, Zijin said. That will support prices though there is a “big” oversupply, it said.

The company, which has been looking at gold and base metals acquisitions in China, hasn’t bought assets because of high gold prices and a “rapid” recovery in base metal prices, Zijin said. It will continue to seek acquisitions in China and overseas in the second half, the company reiterated.

To contact the Bloomberg News staff on this story: Xiao Yu in Beijing on yxiao@bloomberg.net;

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Rio Drops After $102 Billion Excess Ore Charge Report

By Jason Scott

Aug. 10 (Bloomberg) -- Rio Tinto Group, the world’s second- largest iron ore exporter, fell in Sydney trading after a report on a Chinese government-funded Web site blamed the company for 700 billion yuan ($102 billion) in excess ore prices.

London-based Rio fell 3.3 percent to A$58.55, the lowest level since July 30. Jiang Ruqin, an employee with the Jiangsu Province Administration for the Protection of State Secrets, who wrote the report, said in an interview that he has no involvement in a case against four Rio workers detained in China last month, and that no “leaders” asked him to write the essay or reviewed the piece before publication.

The detention of the Shanghai employees, including Australian Stern Hu, has raised concern Rio’s $10 billion sales to the nation may be affected. China “could decide they’re not going to buy any more products,” from Rio though that’s unlikely, RBS Equities Australia Ltd. analyst Warren Edney said.

“That there’s continued adverse press regarding the relationship between China and Rio does concern me,” UBS AG analyst Glyn Lawcock said by phone from Sydney. “Sentiment will drive the share price in the short term until such time as the company comes out and they say ‘to date we have still seen no volume impact.’”

Lawcock is the second-most accurate predictor of Rio’s share price of 13 estimates compiled by Bloomberg, behind Edney. Edney, who has a “hold” rating on Rio, said the report won’t affect his rating.

‘Spies’ Benefit

Amanda Buckley, Rio’s Melbourne-based spokeswoman, declined to comment, referring to a July 17 statement from Sam Walsh, head of its iron ore unit, saying allegations “that employees were involved in bribery of officials at Chinese steel mills are wholly without foundation.”

Jiang, in the article posted Aug. 8 on the Web site http://www.baomi.org, said the Rio case amounted to “taking away 500 yuan from every Chinese citizen and it means giving $100 billion of ‘free’ gross economic product to the spies’ employers.” The site is affiliated with the National Administration for the Protection of State Secrets, was unavailable as of 3:54 p.m. Beijing time.

The figures Jiang used for the article came from China Central Television and the China Youth Daily newspaper, he said.

The allegations “are not new,” a spokesperson for Australia’s foreign minister Stephen Smith said today in e- mailed comments. “The government has always said the Stern Hu case was complex and involved serious allegations.”

Australia’s government continues to give “high priority” to the Hu case and will continue to take a “close interest” in his welfare, according to the e-mail.

Iron Ore Sales

Rio’s iron ore sales in the five years from 2004 to 2008 were $41 billion, according to Bloomberg data. China’s demand doubled in the five years to 2008 as crude steel output jumped 83 percent, according to Bank of America Merrill Lynch.

“The market sets the price, I don’t think there would’ve been any different outcome” in price talks, Mark Pervan, senior commodity strategist at Australia & New Zealand Banking Group Ltd., said from Melbourne. “It’s got nothing to do with Rio.”

Hu and three Rio executives were detained on July 5 for allegedly stealing state secrets and actions that harmed the nation’s economic interests and security. Australia has said the detentions may be connected to annual price talks for iron ore.

Enhance Protection

“The safety of economic information for China’s pillar industries is becoming more important especially as China will soon replace Japan as the world’s second-biggest economy,” Jiang wrote. “Competition from multinational companies has always exceeded the confines of business and become competition of strength in foreign affairs, politics, law, science and culture among countries.”

China’s government agencies should enhance surveillance of the secret-protection work at key companies they supervise, Jiang wrote.

“The article would appear to provide guidance on the nature of protecting state secrets rather than a specific comment on the Stern Hu case,” said Jia Liangqun, vice president of Shanghai-based consultancy Mysteel Research Institute. “Rapid economic development has made the problem of information security more acute.”

Jiang said his job at the State Secrets Administration is to write articles and draft letters. Last year he left a post as the director of the state secrets administration for Huai’an, a city in central Jiangsu province.

“The figures I used were all from CCTV and other media outlets,” Jiang said. “They represent my own opinion.”

On July 16, China Central Television reported that China “paid an extra 700 billion yuan in the past seven to eight years for iron ore imports.”

To contact the reporter on this story: Jason Scott in Perth at jscott14@bloomberg.net

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Oil Falls for a Third Day as Gasoline Drops on Weak Fuel Demand

By Gavin Evans

Aug. 10 (Bloomberg) -- Crude oil fell for a third day in New York after gasoline futures declined on signs of slowing seasonal demand for auto fuel late in the U.S. summer.

Oil also dropped from a five-week intraday high of $72.84 a barrel on Aug. 7 as the dollar traded near a one-week high against the euro, eroding investor demand for commodities priced in the U.S. currency. Crude prices around $70 are “not bad” and are necessary to maintain investment, OPEC President Botelho de Vasconcelos told reporters in Angola yesterday.

“Oil’s looking a little bit vulnerable to some more downside in the first couple of days this week,” said Toby Hassall, a research analyst at Commodity Warrants Australia Pty in Sydney. The dollar’s rally “really undermines a lot of these commodities including oil,” he said.

Crude oil for September delivery fell as much as 71 cents, or 1 percent, to $70.22 a barrel in after-hours electronic trading on the New York Mercantile Exchange, and traded at $70.39 at 2:18 p.m. in Singapore.

The contract declined 1.4 percent to $70.93 a barrel on Aug. 7, its lowest settlement in a week, as the dollar climbed and gasoline futures dropped the most in seven sessions.

New York oil futures gained 87 percent in the past six months as rising equity markets buoyed investor confidence, and the falling U.S. dollar made commodities more attractive. Prices reached an eight-month high of $73.38 a barrel on June 30.

While the decline in the U.S. jobless rate to 9.4 percent was better than expected, it remains high “and that doesn’t bode well for demand at least in the short term,” Hassall said. Seasonal motoring demand in the U.S. also seems to have been “fairly muted,” he said.

June Highs

“Oil looked like it was struggling on the charts as well up around the June highs,” he said. “That contributed to the selling pressure on Friday.”

Brent crude oil for September settlement declined as much as 43 cents, or 0.6 percent, to $73.16 a barrel on London’s ICE Futures Europe exchange, and was at $73.23 at 2:18 p.m. Singapore time.

The dollar traded at $1.4209 per euro from $1.4183 in New York on Aug. 7, when it rose to $1.4155, the highest level since July 31.

The dollar remains a “key” driver for energy prices and oil is unlikely to set fresh highs this year unless the currency resumes its decline, Hassall said.

Weak demand through late summer and the “massive overhang of stockpiles” in the U.S. may also limit any price gains from storms and hurricanes in the Gulf of Mexico, he said.

Gasoline

Gasoline for September delivery dropped as much as 0.8 percent to $1.9925 a gallon, and traded at $1.9933 at 2:19 p.m. Singapore time. Prices declined 2.6 percent to $2.0081 on Aug. 7, the lowest settlement since July 30.

U.S. gasoline demand usually peaks June through August. Refiners there cut production in the three weeks ended July 31. Gasoline stockpiles at that date were 2.9 percent higher than a year earlier, while distillate stocks were 24 percent higher.

Total daily fuel use averaged 18.9 million barrels in the four weeks ended July 31, 3.1 percent less than a year earlier, the Energy Department said last week.

A low-pressure weather system south of the Cape Verde Islands in the eastern Atlantic may strengthen to a tropical storm as it moves west during the next 48 hours, the U.S. National Hurricane Center said on its Web site.

Production may be shut down and tanker traffic delayed in the Gulf of Mexico if storms and hurricanes strike the region. The North Atlantic hurricane season runs from June through November.

To contact the reporter on this story: Gavin Evans in Wellington at gavinevans@bloomberg.net

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Corn, Wheat Futures Gain on Russia, Ukraine Output Concerns

By Luzi Ann Javier

Aug. 10 (Bloomberg) -- Corn and wheat futures gained, reversing earlier declines, on concern dry weather in major exporters Russia and Ukraine, will damage crops, curbing supply.

South and east Ukraine and South Russia are not likely to have enough rain in the seven days through Aug. 14, and “major losses to corn” are expected, weather forecaster DTN Meteorlogix LLC said in a report Aug. 7. “Significant crop losses” were seen in spring wheat areas in Russia and Kazakhstan because of dry weather, DTN said.

“Adverse weather conditions in major growing regions around the world can be a bullish factor by negatively impacting on yield prospects,” CWA Global Markets Pty said in a report e- mailed today. Russia is the world’s second-largest exporter of wheat and Ukraine is the fourth-largest corn shipper, according to the U.S. Department of Agriculture.

Corn for December delivery gained as much as 1.2 percent to $3.3025 a bushel, reversing a 1.6 percent decline earlier. The most-active contract traded at $3.285, up 0.6 percent, in after- hours electronic trading on the Chicago Board of Trade at 2:11 p.m. Singapore time. The grain rose for the first day in five.

Wheat for December delivery gained as much as 0.8 percent to $5.2075 a bushel in Chicago, after losing as much as 0.9 percent earlier. The most-active contract last traded at $5.1875 a bushel, up 0.4 percent.

Soybeans for November delivery, after harvests in the U.S., were little changed at $10.39 a bushel at 2:22 p.m. Singapore time after slumping 2.6 percent to $10.12, the lowest level since Aug. 3 for the most-active contract. The oilseed rose 5.8 percent last week, the second straight weekly advance.

Soybeans, which can be processed to make biodiesel to stretch diesel supply, earlier fell as crude oil declined in New York on concern demand from motor vehicles, which usually peaks June through August, may be slower than expected.

“Lower energy prices reduce demand for soy as an input in the production of biofuels,” CWA Global said.

Crude oil September delivery fell as much as 1 percent to $70.22 a barrel on the New York Mercantile Exchange, before trading at $70.51 a barrel at 2:25 p.m. Singapore time.

-- With assistance from Jae Hur in Singapore. Editors: Richard Dobson, Ravil Shirodkar

To contact the reporter on this story: Luzi Ann Javier in Singapore at ljavier@bloomberg.net

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Osaka Titanium May Miss Profit Forecast on Delays to Boeing 787

By Masumi Suga and Yasumasa Song

Aug. 10 (Bloomberg) -- Osaka Titanium Technologies Co., the world’s second-largest producer, may miss its second-half profit target partly because of delays in Boeing Co.’s new Dreamliner jet, President Shozo Nishizawa said.

Pretax profit from operations for the six months starting Oct. 1 may at best equal the first-half estimate of 600 million yen ($6.2 million), Nishizawa said in an interview in Tokyo. The company in April forecast second-half profit of 1.4 billion yen.

The worst global recession since the Great Depression ended five years of annual demand growth of about 16 percent for the metal, used in industrial plants and aircraft for its corrosion resistance, strength and light weight. Purchases of titanium for chemical factories may not recover until late 2010 and sales to Boeing will be postponed after the company delayed delivery of its 787 Dreamliner for a fifth time, Nishizawa said.

“We didn’t entirely factor in the impact of the Boeing delay,” said Nishizawa, who took office on June 24. Falling prices and volumes may cut Osaka Titanium’s earnings next fiscal year, he said in Tokyo on Aug. 7

Osaka Titanium rose 1.2 percent to 3,330 yen at 12:53 p.m. on the Tokyo Stock Exchange. The shares have gained 50 percent this year, compared with a 47 percent gain in the Topix Nonferrous Metals Index. Sumitomo Metal Industries Ltd. and Kobe Steel Ltd., Japan’s third and fourth-largest steel mills, each have a 23.9 percent stake in the company, based in Amagasaki city, western Japan.

Contract Prices

The company on July 28 posted pretax profit from operations of 742 million yen in the three months ended June 30 and left unchanged its April forecast for full-year earnings of 2 billion yen. The second-half outlook should be clearer by late September to early October, Nishizawa said. Net income is forecast at 1.14 billion yen for the 12 months ended March 31.

Boeing failed to meet a June 16 pledge at the Paris Air Show that the 787 would fly before the end of that month. The planemaker said last month it wouldn’t provide a new target for the flight or for the first delivery until later this quarter.

Osaka Titanium deepened production cuts by 10 percentage points to more than 50 percent below capacity last month because of excess industry inventories, Nishizawa said. The cuts would be maintained until March, he said.

Toho Titanium Co., Japan’s second-largest producer, may miss its full-year profit target on a delayed recovery in demand for the material used in water desalination and liquefied natural gas plants, President Takeshi Kurushima said July 23.

Prior to the recession, profits at Osaka Titanium and Toho Titanium advanced to records in the year ended March 31, 2008.

Negotiations for 2010 contract prices with buyers are expected to be “very tough” as Chinese and Kazakh rivals offer discounts, Nishizawa said, without specifying numbers. Talks will start next month on the export prices, which declined for the first time in five years for 2009.

To contact the reporters on this story: Masumi Suga in Tokyo at msuga@bloomberg.net; Yasumasa Song in Tokyo at ysong9@bloomberg.net.

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Buffett’s Berkshire Adds Corporate Debt as Stock Purchases Drop

By Erik Holm

Aug. 10 (Bloomberg) -- Warren Buffett’s Berkshire Hathaway Inc. is buying corporate debt and securities issued by governments outside the U.S. as the billionaire investor’s spending on stocks falls to the lowest in more than five years.

Berkshire held about $11.1 billion in foreign government bonds in its insurance units as of June 30, compared with $9.6 billion three months earlier, the company said in a regulatory filing Aug. 7 announcing second-quarter results. Buffett, 78, spent $2.6 billion in fixed-maturity securities in the three months ended June 30 compared with $350 million on stocks.

Buffett is increasing fixed-income investments after results slumped at operating units including NetJets Inc., the money-losing plane-rental business, and companies in Berkshire’s equity portfolio including Wells Fargo & Co. slashed dividends. Omaha, Nebraska-based Berkshire posted its first profit gain since 2007 as payments from securities issued by Goldman Sachs Group Inc. and General Electric Co. boosted investment income.

“Some of the normal places he’s gotten the cash to invest are just getting killed in the recession,” said Gerald Martin, a finance professor at American University’s Kogod School of Business in Washington. “So he’s locking in these guaranteed returns, moving from the volatility of stocks to a steady stream of income that, in some cases, is almost at the return you normally get from the stock market.”

The $8 billion in investments in preferred shares of Goldman Sachs and GE are paying Berkshire 10 percent annual interest. Combined with the purchase of similar securities sold by Swiss Reinsurance Co., and Berkshire’s investment in debt in companies including candy manufacturer Mars Inc. and Vulcan Materials Co., the firm’s announced fixed-income deals since September pay interest of more than $1.8 billion annually.

Iceberg’s Tip

“That’s just the visible part of the iceberg, and it’s pretty massive,” said Mohnish Pabrai, founder of Irvine, California- based Pabrai Investment Funds, which owns Berkshire shares. “There’s lots of investments we don’t see and may never know about, especially on the debt side.”

The latest investments included the purchase of non- investment grade corporate debt. The amortized cost of the insurance operation’s high-yield corporate holdings rose 13 percent to $6.02 billion in the three-month period. Junk-rated debt returned 23 percent in the second quarter, as investors speculated the worst of the recession was over, according to Merrill Lynch & Co.’s High Yield Master II index.

Government Debt

The amortized cost of the insurance operation’s foreign government holdings rose 16 percent. The filing doesn’t list the nations that issued the debt or the companies in which Berkshire invested. Buffett is Berkshire’s chief executive officer, chairman and head of investing.

“It may be that Buffett thinks that inflation in the U.S. will be worse than elsewhere in the world,” said Martin, who has studied Berkshire’s investing history.

The shift toward fixed-income boosted investment income 9 percent from the year-earlier period to $1.87 billion at its insurance and finance operations, even as dividend revenue declined from some of Berkshire’s top stock holdings. Wells Fargo cut its quarterly payout to shareholders by 85 percent in March, and U.S. Bancorpslashed its payment 88 percent. Berkshire is the largest shareholder in Wells Fargo.

The Goldman Sachs and GE investments also give Buffett the option to buy stock at prices set when the deals were consummated. The Swiss Re securities are among those that may convert to stock later.

‘Major Mistake’

The $350 million that Berkshire spent on equities in the second quarter is the least since at least 2005, according to regulatory filings. It broke the mark set in the first quarter, when the firm spent $624 million on equities including Wells Fargo.

The firm sold more common stock that it bought this year, after Buffett confessed to a “major mistake” of purchasing shares of oil-producer ConocoPhillips with prices of the commodity near a peak. A writedown on the stake contributed to a first-quarter loss, Berkshire’s first unprofitable quarter since 2001. Buffett is expected to list U.S. stock holdings as of June 30 in a separate filing this month.

Berkshire’s own shares passed $100,000 in New York Stock Exchange composite trading last week for the first time since January, recovering from a six-year low in March. The stock, which closed at $108,100 before results were released on Aug. 7, is now up 12 percent this year.

Berkshire’s second-quarter net income rose 14 percent from a year earlier to $3.3 billion, as Buffett’s bet on derivatives tied to world equity markets gained in value.

Operating Profit Declines

Operating profit, which excludes some investment results, fell 22 percent to $1.78 billion as NetJets posted a $253 million pretax loss and revenue was pressured at Berkshire businesses that sell jewelry and furniture, and make products used in home building.

“He’s gotten himself into many small businesses that are not going well,” said Charles Ortel, managing director of New York-based Newport Value Partners, who advises clients to bet against Berkshire shares. “You are seeing revenue contracting and profits shrinking at alarming rates.”

Manufacturing subsidiaries have “taken actions to reduce costs, slow production and reduce or delay capital spending until the economy improves,” Berkshire said.

To contact the reporter on this story: Erik Holm in New York at eholm2@bloomberg.net.

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Japan, Australia Stock Futures Rise on U.S. Jobs, Yen, Metals

By Masaki Kondo and Satoshi Kawano

Aug. 10 (Bloomberg) -- Japanese and Australian stock futures rose after the U.S. jobless rate dropped for the first time in more than a year, the yen weakened and metals prices gained for a fourth consecutive week.

U.S.-traded securities of Sony Corp., which gets about a quarter of its sales from the U.S., climbed 2.7 percent from the Tokyo close. Those of machinery maker Komatsu Ltd. advanced 4.3 percent ahead of a government report on Japan’s machine orders. New York-traded securities of BHP Billiton Ltd., the world’s biggest mining company, gained 1.5 percent from the Sydney close.

“The improvement in the U.S. job market will increase demand for risk assets globally, including stocks,” said Tomochika Kitaoka, a senior strategist at Mizuho Securities Co. in Tokyo. “Exporters will get an extra boost in that the yen is sufficiently weak to help raise their profits.”

Futures on Japan’s Nikkei 225 Stock Average expiring in September closed at 10,590 in Chicago on Aug. 7, 1.6 percent higher than 10,420 in Osaka. Australia’s S&P/ASX 200 Index futures contract due in September rose 1 percent. New Zealand’s NZX 50 Index added 0.5 percent to 3,085.06 in Wellington today.

The MSCI Asia Pacific Index has gained 57 percent from more than a five-year low on March 9 as manufacturing in China, Europe and the U.S. improved. Stocks on the gauge trade at 1.55 times corporate net worth, nearing an 11-month high of 1.56 times reached on Aug. 3.

In New York, the Standard & Poor’s 500 Index climbed 1.3 percent on Aug. 7 after a Labor Department report showed the joblessness rate dropped to 9.4 percent last month from June, the first decline since April 2008. Economists had estimated the rate would rise to 9.6 percent.

Machine Orders

The Japanese currency depreciated to as much as 97.78 from about 95.43 at the 3 p.m. close of Tokyo stock trading on Aug. 7. A weaker yen boosts the value of overseas trading at Japanese companies when converted into the local currency.

A gauge of six metals in London added 1.7 percent, bringing its five-day advance to 7.2 percent and capping its fourth weekly gain.

At 8:50 a.m. Tokyo time, Japan’s Cabinet office is scheduled to release a report on the nation’s machine orders. Bookings, an indicator of corporate spending in the next three to six months, are estimated to have risen 2.6 percent in June from May, according to economists surveyed by Bloomberg.

To contact the reporter for this story: Masaki Kondo in Tokyo at mkondo3@bloomberg.net; Satoshi Kawano in Tokyo at skawano1@bloomberg.net.

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European Stock-Index Futures Decline; Daimler Shares May Fall

By Adam Haigh

Aug. 10 (Bloomberg) -- European stock-index futures fell after four straight weeks of gains left the Dow Jones Stoxx 600 Index valued at the most expensive relative to earnings in almost six years. Asian shares rose, while U.S. futures slipped.

Daimler AG, the world’s second-biggest maker of luxury cars, may drop after Morgan Stanley recommended selling the shares. Lloyds Banking Group Plc might be active after the Times newspaper said the U.K. lender may seek to raise as much as 25 billion pounds ($41.7 billion) selling shares.

Futures on the Euro Stoxx 50, a measure for the euro region, slid 0.4 percent to 2,695 at 7:43 a.m. in London. The U.K.’s FTSE 100 Index is poised to open 20 points lower, according to inter-dealer broker BGC Partners. Standard & Poor’s 500 Index futures expiring in September dropped 0.1 percent.

Europe’s Stoxx 600 has rallied 46 percent since March 9 as companies from GlaxoSmithKline Plc to Goldman Sachs Group Inc. reported better-than-estimated earnings. The measure is valued at 40.1 times the profits of its companies, the highest level since September 2003, weekly data compiled by Bloomberg show.

“I don’t think any economic recovery yet is written in stone,” said Robert Prugue, head of Lazard Asset Management in Sydney, which oversees about $98 billion in assets. “Being a little bit too optimistic without being truly pragmatic about the conditions yet to uncover is perhaps bordering from irrational exuberance to irresponsible exuberance,” he told Bloomberg Television.

The MSCI Asia Pacific Index climbed 1 percent today as Japanese machinery orders increased, spurring speculation the world’s second-largest economy is emerging from its recession.

Tyson, Krugman

The U.S. economy may also be on the cusp of a recovery and the impact of the nation’s stimulus plan should increase this quarter, according to Laura Tyson, an adviser to President Barack Obama.

“We may have hit stability, we may be in the beginning of an upturn” based on the latest economic data, Tyson, a member of the White House’s Economic Recovery Advisory Board, said yesterday during an interview in Kuala Lumpur. Nobel Prize- winning economist Paul Krugman said the deepest slump since the Great Depression may be ending.

Still, options traders are increasing bets that the steepest rally in the S&P 500 since the 1930s won’t survive September, historically the worst month for U.S. equities. Traders are betting the VIX, a gauge of expected stock swings, will increase 13 percent in the next five weeks, according to futures prices compiled by Bloomberg.

‘Underweight’

Daimler may decline after Morgan Stanley downgraded the shares to “underweight” from “overweight.”

Lloyds may move. The company’s new chairman, Win Bischoff, is seeking to raise between 15 billion pounds and 25 billion pounds in a share sale as a part of a plan to reduce the bank’s exposure to the U.K.’s asset protection plan, the London-based Times reported, without saying where it got the information.

Lloyds is considering reducing the amount of assets it will put in the toxic-debt plan by as much as half in order to reduce the fees it will have to pay, the Times reported. The government may back a share sale and has agreed in principle to the bank’s use of the toxic-asset plan, though contracts have still to be signed, the newspaper said.

Bourbon SA may be active. The owner of the world’s biggest fleet of supply ships for deep-water oil exploration said second-quarter sales increased 9.7 percent to 243.5 million euros ($345.5 million).

U.K. companies are having an easier time getting access to loans in a sign the credit crunch is abating, the Confederation of British Industry said. A net 18 percent in a survey of 73 firms said credit availability improved in the past three months, compared with a net 20 percent reporting a deterioration in May, Britain’s biggest business lobby said today in London.

To contact the reporter on this story: Adam Haigh in London at ahaigh1@bloomberg.net

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Asian Stocks Advance on U.S. Jobs, Japanese Machinery Orders

By Shani Raja

Aug. 10 (Bloomberg) -- Asian stocks rose, led by automakers and consumer companies, after the U.S. jobless rate dropped and Japanese machinery orders increased, boosting confidence the world’s two largest economies are emerging from recessions.

Toyota Motor Corp., which gets 31 percent of its revenue from North America, gained 2 percent in Tokyo. Bridgestone Corp., the world’s largest tiremaker, rose 5.6 percent in Tokyo after forecasting a profit. China Mobile Ltd. advanced 2.9 percent in Hong Kong after the country’s premier said it will maintain policies aimed at bolstering domestic spending.

The MSCI Asia Pacific Index climbed 0.9 percent to 111.74 as of 2:37 p.m. in Tokyo, following a 1 percent drop last week. The gauge has risen 59 percent from a more than five-year low on March 9 amid speculation government stimulus efforts around the world will help the global economy recover.

“The key message to investors is to buy the markets,” said Kerry Series, head of Asia-Pacific equities at Sydney-based AMP Capital Investors Ltd., which holds $95 billion. “The stimulus is starting to take effect and you can see the early stages of it. I think the stock market has reflected that.”

Japan’s Nikkei 225 Stock Average rose 1.3 percent to 10,545.90 as strategists at Nomura Holdings Inc. predicted the gauge may climb as high as 11,500 by the end of October. Mitsubishi Rayon Co., which makes fabrics and chemicals, surged 21 percent after the Nikkei newspaper reported the company may be bought by rival Mitsubishi Chemical Holdings Corp.

Beating Estimates

Hong Kong’s Hang Seng Index climbed 2.2 percent. Australia’s S&P/ASX 200 Index advanced 0.2 percent, led by real- estate trust Goodman Group, which surged 14 percent after a share sale eased concerns about the company’s debt levels. Pumpkin Patch Ltd., New Zealand’s second-biggest publicly traded retailer, rose 3.5 percent in Wellington after the country’s house prices rose.

Futures on the Standard & Poor’s 500 Index lost 0.1 percent. The gauge climbed 1.3 percent on Aug. 7 after a Labor Department report showed the joblessness rate dropped to 9.4 percent last month from June, the first decline since April 2008. Economists had estimated the rate would rise to 9.6 percent.

Japanese machinery orders, an indicator of capital investment in the next three to six months, climbed 9.7 percent from May, the Cabinet Office said today in Tokyo. The median estimate of 22 economists surveyed by Bloomberg was for a 2.6 percent increase.

Toyota gained 2 percent to 4,170 yen. Sony Corp., which gets about a quarter of its sales from the U.S., climbed 3 percent to 2,775 yen. Komatsu Ltd., the world’s second-biggest maker of construction equipment, rose 3.2 percent to 1,637 yen.

Higher Forecast

Bridgestone jumped 5.6 percent to 1,785 yen after forecasting full-year net income of 6 billion yen ($62 million), compared with an earlier break-even prediction.

The yen weakened against the dollar after the U.S. jobs report, boosting the outlook for Japanese export earnings. The U.S. currency last week strengthened 3.1 percent against the yen, the steepest weekly advance in two months.

Companies’ efforts to cut costs boosted investor confidence in the outlook for earnings, Nomura strategists wrote in a report. The analysts said the Nikkei 225 may rise as high as 11,500 by the end of October, lifting a previous estimate that ranged between 10,500 and 11,000.

The stock rally since March has lifted the average price of companies in the MSCI Asia Pacific Index to 1.57 times book value, the highest level since Sept. 10, which was five days before Lehman Brothers Holdings Inc. filed for bankruptcy. That level is still lower than the five-year average of 1.83 times book value, data compiled by Bloomberg show.

Economic Improvement

“Valuations are not stretched, but the market’s moved a hell of a long way since the bottom,” said Mark Konyn, Hong Kong-based chief executive officer of RCM Asia Pacific Ltd., which holds $11 billion. “The question is whether or not we’ll see that follow through in economic improvement and I think you see it in the jobs numbers in the U.S.”

China will maintain its current macroeconomic policy stance aimed at bolstering domestic spending as the nation continues to experience fallout from the global recession, Premier Wen Jiabao said yesterday.

China Mobile, the world’s largest cell-phone operator by users, advanced 2.9 percent to HK$91.15. Aluminum Corp. of China Ltd., China’s largest maker of the light metal, climbed 4 percent to HK$9.84.

New Zealand Housing

Pumpkin Patch gained 3.5 percent to NZ$1.80. New Zealand house prices rose for the third month in July, advancing 0.7 percent from the previous month, according to Quotable Value New Zealand Ltd., the government valuation agency.

Mitsubishi Rayon surged 21 percent to 331 yen after the Nikkei reported Mitsubishi Chemical may pay as much as 200 billion yen to buy the company. Mitsubishi Rayon said it had no statement to make.

Mitsubishi Chemical wasn’t the source of the information, spokesman Yoshinori Nagayama said. The company’s shares added 5 percent to 444 yen.

In Sydney, coal producers rallied as Yanzhou Coal Mining Co. and Felix Resources Ltd. halted trading of their shares amid speculation China’s fourth-biggest coal producer plans a takeover bid for its Australian rival. Macarthur Coal Ltd., the world’s biggest exporter of pulverized coal, climbed 7.9 percent to A$8.38. Centennial Coal Co. rose 5.8 percent to A$3.12.

In Hong Kong, Hang Seng Bank Ltd. gained 2 percent to HK$118.10 after Chief Executive Officer Margaret Leung said the lender may raise its 12.8 percent stake in China’s Industrial Bank Co. Industrial Bank added 0.3 percent to 39.30 yuan.

Goodman surged 14 percent to 50.5 Australian cents. Institutional investors bought A$923 million ($773 million) shares for 40 cents each, the Sydney-based company said in a statement today, while retail investors are expected to buy A$355 million in shares.

“Some traders were wanting this capital raising to take place,” said Chris Weston, an institutional dealer at IG Markets in Melbourne. “It’s being taken positively because it will result in a stronger balance sheet, better liquidity and an impressive gearing.”

To contact the reporter for this story: Shani Raja in Sydney at sraja4@bloomberg.net.

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Gold Rallies as Dollar Advance Stalls, Boosting Demand Prospect

By Jae Hur

Aug. 10 (Bloomberg) -- Gold climbed for the first time in four days, reversing an earlier loss, as the dollar’s rally stalled, increasing the appeal of the precious metal as an alternative investment. Silver gained for a second day.

Bullion rose as much as 0.2 percent as the dollar fell against a basket of six major currencies. Gold shed 0.9 percent on Aug. 7 as the dollar index gained after the U.S. jobless rate in July dropped to 9.4 percent, the first decline since April 2008. Economists had forecast an increase to 9.6 percent.

“This is a tug of war between gold prices and the U.S. dollar,” Gavin Wendt, a senior resources analyst at Fat Prophets Funds Management, said in an interview today. “It’s been an ongoing battle with the U.S. dollar, almost done on a daily basis.”

Gold for immediate delivery added 0.1 percent to $956.30 an ounce at 1:34 p.m. in Singapore. The metal for December delivery fell 0.1 percent to $958.50 an ounce after trading as low as $953.20 on the Comex division of the New York Mercantile Exchange.

The Dollar Index fell as much as 0.3 percent to 78.733 before trading at 78.791 at 1:36 p.m. Singapore time. The dollar lost 0.1 percent to $1.4203 against the euro after gaining 1.1 percent $1.4183 on Aug. 7, its biggest increase since June 15.

Holdings Decrease

Gold holdings in the SPDR Gold Trust, the biggest exchange- traded fund backed by bullion, decreased 3.97 metric tons to 1,068.90 metric tons as of Aug. 7, according to figures on the company’s Web site.

Hedge-fund managers and other large speculators increased their net-long position in New York gold futures in the week ended Aug. 4, according to U.S. Commodity Futures Trading Commission data.

Speculative long positions, or bets prices will rise, outnumbered short positions by 193,514 contracts on the Comex division, the Washington-based commission said Aug. 7 in its Commitments of Traders report. Net-long positions rose by 20,743 contracts, or 12 percent, from a week earlier.

European central banks agreed last week to a third five- year cap on gold sales and said planned disposals by the International Monetary Fund could be done within the accord.

The European Central Bank and 18 other banks agreed to sell no more than a combined 400 metric tons of the metal a year through September 2014. That’s less than the annual cap of 500 tons in the current agreement, which expires Sept. 26.

Among other precious metals for immediate delivery, silver rose 0.4 percent to $14.68 an ounce, while platinum shed 0.6 percent to $1,256.25 an ounce. Palladium was up 0.2 percent at $275.75 an ounce at 1:41 p.m. Singapore time.

To contact the reporter on this story: Jae Hur in Singapore at jhur1@bloomberg.net

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